Gold is as American as liberty, guns, and apple pie. Throughout our history, gold has been part of our country, our character, and our nation. The Founding Fathers, and our ancestors, knew the importance of gold to the stability and future of America. This article will briefly touch on the history of real money in the United States.

In early America, the value of a coin was based solely on the value of the metal within. In those days, the country with the most gold had the most monetary wealth. That's one reason why Spain, Portugal, and England sent explorers to the New World. They wanted more gold. Were it not for this fact, the settling of the New World by the great European civilizations would have been delayed.

Governments have often tried to hoard, confiscate, or manipulate gold

When America was ruled by England, the Mother country often faced coin shortages and used many different kinds of commodity money in their dealings with the native Americans and other countries. Hard coin was especially necessary when dealing with foreign merchants. For this reason several types of foreign coins circulated during the colonial period. The English guineas, gold ducats from the Netherlands, louis d'ors from France, and, the Spanish gold doubloon were among the commonly circulated foreign gold coins in early America. All forms of foreign currency were finally demonetized in the US by the Coinage Act of 1857. The Act made the gold coins that were being produced only in Philadelphia, Dahlonega, New Orleans, and San Francisco as legal.

"We have gold because we cannot trust governments" Herbert Hoover

Under a Gold Standard, a country's money supply is linked to gold. Gold coins used to circulate as domestic currency along with coins of other metals and notes. As each currency was fixed in terms of gold, exchange rates between participating currencies were also fixed. In 1871, the newly unified Germany joined the Gold Standard. Germany's decision together with the then economic and political dominance of the UK and the attraction of accessing London's financial markets, was sufficient to force other countries to adopt it as well. This transition to an institutionalized international Gold Standard could also have been based on changes in the relative supply of silver and gold. The necessity of being able to convert fiat money into gold on demand strictly limited the amount of fiat money in circulation by central banks. In practice, a number of researchers have shown that central banks did not always follow the rules of the game and that gold flows were sometimes sterilized by offsetting the impact on domestic money supply by buying or selling domestic assets.

By 1900 all countries apart from China, and some Central American countries, were on a Gold Standard. This lasted until it was disrupted by the First World War. Periodic attempts to return to a pure classical Gold Standard were made during the inter-war period, but none survived past the Great Depression of the 1930s.

"At the end fiat money returns to its inner value - zero" Voltaire

President Franklin D. Roosevelt signed an Executive Order 6102 on April 5, 1933 forbidding the hoarding of gold coin, gold bullion, and gold certificates within the continental United States. The punishment could include a penalty of $10,000 and/or up to five to ten years imprisonment. The main rationale behind the order was actually to remove the constraint on the Federal Reserve which prevented it from increasing the money supply during the depression; the Federal Reserve Act (1913) required 40% gold backing of Federal Reserve Notes issued. By the late 1920s, the Federal Reserve had almost hit the limit of allowable credit (in the form of Federal Reserve demand notes) which could be backed by the gold in its possession. The situation changed in 1974, when Congress reversed the order.

"Gold is money. Everything else is credit" JP Morgan

It was decided during the Second World War that a new international system would officially replace the Gold Standard. The design for it was agreed upon at the Bretton Woods Conference in the US in 1944. It fixed the dollar to gold at US$35 per ounce and all other currencies fixed their exchange rate to the dollar. The world economy grew rapidly during the Bretton Woods era however strains started to show in the 1960s. Global inflation was rising and made the official price of gold too low in real terms. The United States was running a trade deficit and other countries were disinclined to raise their exchange rates against the dollar. Efforts were made by eight countries which pooled their gold reserves to defend the US$35 per ounce peg and prevent the price of gold moving upwards. This was a short term solution and in March 1968, a two-tier gold market was introduced with a freely floating private market, and official transactions at the fixed parity. The United States continued to run a trade deficit and other countries became increasingly hesitant to accept US dollars. Finally in August 1971, President Nixon announced that the US would end on-demand convertibility of the dollar into gold for the central banks of other nations. The Bretton Woods system collapsed and gold traded freely on the world's markets.

"Because gold is honest money it is disliked by dishonest men" Ron Paul

One of the definitions for fiat money is "An intrinsically useless object that serves as a medium of exchange". The United States Constitution states in Article I, Section 10, "No State shall...make any Thing but gold and silver Coin a Tender in Payment of Debts." This is no longer followed. Today, governments would like to do away with even paper fiat money and move to a completely electronic fiat monetary system. They want this in order to increase the array of state powers, including confiscatory capability and the flexibility to more readily bail out institutions during economic crises. Electronic fiat would also prevent people from hoarding cash, and would make it easier for central banks to more readily affect money velocity through various tools including negative interest rates. Conversely, money backed by gold or silver makes it more difficult for government to manipulate the monetary system to its own ends - for example excessively spending on wars. If people started using gold and silver, it would effectively constrain central banks and end the state's monopoly on money.

America loves gold because it is unlike any other asset

At one time, Americans held considerable amounts of physical gold. It was second nature to them. That's because they knew that gold always retains its true value, unlike paper money which always depreciates over time. The Founding Fathers knew that fiat currencies cannot be counted as stable money. But today, citizens are unaware of the importance of owning and holding gold, having become accustomed to using intrinsically worthless fiat. If history is our teacher, we know that unbacked currencies always fall by the wayside, and America will, again, turn to the yellow metal.